Bill Gross: We've Discovered That The World Had A 'Flawed Business Model'

Bloomberg TV
The world is changing and the old model of debt-driven growth is now just "a flawed business model," according to PIMCO's Bill Gross.

In an editorial published this morning in the Financial Times, Gross explains that the euro area's "growth-snatching" policies—which allowed countries to use leverage in place of sustainable growth—are not just European problems. Markets are just beginning to recognize this:

What has become obvious in the last few years is that debt-driven growth is a flawed business model when financial markets no longer have an appetite for it. In addition to initial conditions of debt to gross domestic product and related metrics, the ability of a sovereign to snatch more than its fair share of growth from an anorexic global economy has become the defining condition of creditworthiness - and very few nations are equal to the challenge.

But while the "the U.S., U.K. and numerous G-10 others have had the ability to print and 'grow' their way out of it," that doesn't mean this model is actually sustainable:

Investors, then, must be leery of the self-reinforcing dynamic that has many fathers and spreads much of the blame: ad hoc and insufficient policies from fiscal and monetary authorities; decades of balance sheet and savings abuse from the southern euroland periphery; unresponsive and insufficient support from supranational agencies, including the International Monetary Fund; a me-first attitude from developing nations that control global reserves.

Gross's statements seem to be the latest installment of a discourse about whether or not spending can pull countries out of recession even when their sovereign debt is unsustainable in the long term. Gross clearly lines up on the "no" side of this debate.